Trade Opportunity of the Week: BE Gapper | November 16th 2024

The Trade Opportunity

The purpose of this weekly article is to analyze the top trading opportunity of the week. The purpose of this is to improve our identification and execution of high quality trade ideas that meet our setup requirements.

Each article will focus on a stock that meets one of three of the main categories of setups I trade:

• Range Breakout / VCP
• Pullback to Support/ MA
• Gapper

These articles are like taking a step into the batting cage and loading up a historical at bat from a Ace pitcher in the world series – they will help you prepare and execute in future situations by studying important moments from the past

This week the market pulled in sharply and many stocks were extended to start with. Here were the setups I considered covering

AFRM pullback to prior base high Friday – a good setup

IBIT gapper – this would have been a late entry as it was already extended

ROOT Breakout from double inside days Friday – good swing setup but a more volatile name – we’ll see if it continues the momentum

I decided to focus today on BE – a gapper on a news catalyst on the highest volume ever – this has the potential to be the start of a new strong uptrend.

Thursday evening they put out a news briefing of a new announcement to power an AI data center with their technology

Weekly Chart – has made strong moves in the past but has also been very choppy the last few years

Discovery

Before you can trade a stock you need to know it exists. To get this one on your radar you would have to build it into your routines to track recent strong earnings gappers (BE was up 23% on 11/8) and/or check for gap ups and downs each night after the close or in premarket.

To do this you can use something like my dashboard setup in Deepvue. I have screens that look for gap ups and down and then take a look an intraday price action.

You always need to consider the context and catalyst behind a gap – the BE news is much more positive and conducive to a long term trend than SMCI which is based on that they will meet a delisting deadline.

Once you noticed the BE gap and looked at the news – it would have gone to your daily focus list for friday to look for a potential entry

Setup and Execution

The Setup for BE was a gapper – For gappers the key is to find a spot to manage your risk tightly and look to have a good cushion into the end of the day. For these they are often volatile and you need to size and manage risk to maybe give them a shot multiple times if you are stopped

For me usually this occurs

1. Right at the open, using the LOD as a stop – looking for immediate demand
2. Very close to the open on an opening range breakout, or mini base and rally
3. within the first hour-two on an intraday constructive base

For Gappers I may watch the first few minutes on a 1-minute to gauge demand, but I want to get to the 5 min and 15min timeframes shortly thereafter

BE did not show immediate demand off the open so you would be looking for an intraday turn from a mini base

After the stock had been trading for a bit you would want to switch to a 5min or higher. actually if I got a good entry with low risk (under 3%) and the stock pushes I want to switch to a daily chart and just wait until the close to take a look.

This one rose about 9% (or around 3R) from the best early entry but then pulled back to VWAP, under cut it, and potentially stopped you out if you have raised stops.

At that point that first early entry from around 18:25 to 18:45 result would have been:

• Stop out at breakeven or small profit if you had raised stops at 3R
• Stop out at decent small profit if you have raised stops and taken a partial at 3R
• Small cushion on remaining position if taken partial at 3R but not raised stop
• Small cushion or near breakeven on full position if no partials taken

Then BE firmed up again and build a constructive intraday base and pushed higher, giving you a change for entry, re-entry, add, or just more confidence if you were holding from earlier. Again you could have managed risk under 3% using the higher low

From there BE closed well, retaking the VWAP and trending above the intraday MAs

Even with a strong close with a good cushion (15% from early mini base, and 10% from intraday base) I’m mentally aware that the stock could retrace that the enxt day and test the day one VWAP or key levels. You could choose to take additional partials or sit with your cushion.

Trade Management

Since this potential entry happed on friday, there has not been any trade management outside of potentially booking partials.

BE closed high in the range on the highest volume ever, potentially signalling this is just the start.

Early next week you should be prepared for a potential stress test and retrace. You would have a good cushion to work with so you would want to plan out how you would handle such an event.

With a 15% cushion and a good close I would want to give it the benefit of the doubt but I would not let the position turn into a loss.

On the positive side if BE showed strong continuation up you would be in a great position to hold for a nice trend – potentially taking additional partials if a swing trader.

If aggressive, you could also use additional entry tactics on Day 2 (HVC or mini intraday base) or after a mini daily consolidation to look to add back partials or simply add a bit more if you could manage risk – I would treat these as separate to my initial position.